It seems that the head of the IMF Christine Lagarde has offended the Greek people according to Greek politicians. Evangelos Venizelos, PASOK (socialist party) president, told an election rally that "Nobody can humiliate the Greek people during the crisis" whereas Alexis Tsipras (the leader of the far left political party) took this as an opportunity to attack the other parties claiming: "For tax-evaders, she should turn to PASOK and New Democracy". I can understand that their role as politicians requires them to keep a strong image to the public, however, what Lagarde said was not an insult. When asked whether what she was saying meant that Greece and the other European nations had a nice time and it was now payback time, she simply answered "That's right.". As far as I'm concerned she was just stating the truth and was in fact being kind towards Greece as the statement involved 'Greece and the other European nations'.
If we take a look back in 2004, Greece confessed that they forged their figures in 1999, as their deficit was not below 3% of their GDP (one of the requirements to join the Eurozone), thus, they shouldn't have been accepted in the first place. Unfortunately for them, they managed to make the cut. Conversely, it might have worked out better if this flaw was seen and brought up so that Greece would be able to keep their monetary sovereignty. Supposing, Greece kept the Drachma, they would have been able to depreciate their currency, lower their own interest rates, and increase quantitative easing during the recession resulting in Greece as well as the rest of the world being in a healthier position today. Regrettably, Greece did join the Eurozone, which made it cheaper for them to borrow money, as a result, Greece began to increase its spending, hence, increasing its debt. The most notable project, in my opinion was the 2004 Olympic games; it went well over its budget and cost Greece an estimated $15 billion. At the time it might not have been a great deal, but it certainly is now. Luckily for Greece however, they didn't win the Eurovision as I don't think they would have the capacity to finance it.
It's no secret that there have been many Greeks who have been evading tax. The first thing that may pop into your head might be the claim of there being more Porsche Cayennes in Greece than there are people declaring an income of 50,000 euros and above. Well fortunately, that's false, in 2010, 311,428 people declared an income of 50,000 or more euros, also a Porsche spokesman said that they have only sold about 1,500 Cayennes in Greece since the car was released. However, in 2011 there was a farmer who owned a Ferrari as well as a Porsche and had only declared 100,000 euros of income in the past decade. Moreover, income tax revenue as a percentage of GDP in Greece is only 4.7% making it the lowest in Europe and the average is 8%. And so I think I've made my point about Greece evading taxes.
Having said all that, Greece should not leave the Eurozone, it won't be just Greece which turns to turmoil but the rest of the world as well. Greece has a total debt of $447 billion from governments, banks as well as private lending. Therefore, if it leaves the euro and declares bankruptcy, the $44.3 billion which France used to support Greece would have been for nothing (Greece's largest lender). What's more, Germany would be in a worse state because their government has given roughly $6.68 billion to Greece. Leaving the Eurozone, would also put banks in shock, making borrowing a lot harder and lending a lot more expensive. Thus, tightening the rest of the Eurozone members as it will be difficult for them to borrow money to aid their economies.
The opinion polls indicate that the 17 June elections in Greece are going to be won by Syriza, the one party which is against the bailouts. I honestly don't know how selfish these people can be. If they don't accept the terms to the bailout Greece will be forced to leave the Eurozone, most likely adapt the Drachma again. Let's have a quick look at the outcome of such a scenario; high costs to Greece to change everything back to Drachma, it will annoy every country which had faith and made an investment towards Greece, it would make it harder for other struggling Eurozone countries to come out of recession because lenders would not risk another default scenario.
The way in which Greece may be saved is if the European Central Bank, instead of it increasing its interest rates from 1% to 1.5%, they should decrease them. Furthermore, the Greek government needs to subsidise or support, as subsidising might be very expensive, firms. Those firms will provide new jobs for the unemployed and contribute to GDP, thus resulting to economic growth. Unfortunately, the world economy is in a terrible state, meaning that firms won't be expanding, however when they do, Greece needs to make sure they're the most appealing candidates for that firm to be prosperous.
It's no secret that there have been many Greeks who have been evading tax. The first thing that may pop into your head might be the claim of there being more Porsche Cayennes in Greece than there are people declaring an income of 50,000 euros and above. Well fortunately, that's false, in 2010, 311,428 people declared an income of 50,000 or more euros, also a Porsche spokesman said that they have only sold about 1,500 Cayennes in Greece since the car was released. However, in 2011 there was a farmer who owned a Ferrari as well as a Porsche and had only declared 100,000 euros of income in the past decade. Moreover, income tax revenue as a percentage of GDP in Greece is only 4.7% making it the lowest in Europe and the average is 8%. And so I think I've made my point about Greece evading taxes.
Having said all that, Greece should not leave the Eurozone, it won't be just Greece which turns to turmoil but the rest of the world as well. Greece has a total debt of $447 billion from governments, banks as well as private lending. Therefore, if it leaves the euro and declares bankruptcy, the $44.3 billion which France used to support Greece would have been for nothing (Greece's largest lender). What's more, Germany would be in a worse state because their government has given roughly $6.68 billion to Greece. Leaving the Eurozone, would also put banks in shock, making borrowing a lot harder and lending a lot more expensive. Thus, tightening the rest of the Eurozone members as it will be difficult for them to borrow money to aid their economies.
The opinion polls indicate that the 17 June elections in Greece are going to be won by Syriza, the one party which is against the bailouts. I honestly don't know how selfish these people can be. If they don't accept the terms to the bailout Greece will be forced to leave the Eurozone, most likely adapt the Drachma again. Let's have a quick look at the outcome of such a scenario; high costs to Greece to change everything back to Drachma, it will annoy every country which had faith and made an investment towards Greece, it would make it harder for other struggling Eurozone countries to come out of recession because lenders would not risk another default scenario.
The way in which Greece may be saved is if the European Central Bank, instead of it increasing its interest rates from 1% to 1.5%, they should decrease them. Furthermore, the Greek government needs to subsidise or support, as subsidising might be very expensive, firms. Those firms will provide new jobs for the unemployed and contribute to GDP, thus resulting to economic growth. Unfortunately, the world economy is in a terrible state, meaning that firms won't be expanding, however when they do, Greece needs to make sure they're the most appealing candidates for that firm to be prosperous.
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